Well-traveled 401(k) lawsuit is back in Charleston, where it started

A landmark lawsuit over retirement savings that worked its way from the Four Corners of Law to the nation's highest court is back in its original bailiwick.

Lawyers last week refiled a complaint in Charleston on behalf of James LaRue, who has alleged that he lost $150,000 after his employer, management consulting firm DeWolff Boberg & Associates Inc. , failed to follow his instructions to switch the stocks in his 401(k) plan to less risky investments.

The case, first brought in 2004 and officially bounced back to the local U.S. District Court in late March, is being watched closely, particularly by businesses that offer these employee-managed retirement accounts to workers. Tens of millions of workers have a total of more than $3 trillion invested in 401(k) savings plans, according to the Investment Company Institute, a mutual fund industry group.

At issue in the LaRue appeal was the Employee Retirement Income Security Act, a 1974 federal law enacted to regulate worker benefits. In the past courts have ruled that individuals cannot sue employers over retirement-plan losses.

It seemed LaRue was no exception. Two lower courts — the U.S. District Court at Broad and Meeting streets and a federal appeals court in Virginia — disallowed his complaint.

But the U.S. Supreme Court last year agreed to hear his case. In February the justices ruled 9-0 in favor of LaRue, saying he could bring suit against DeWolff Boberg to recover not only his actual losses but any profits he would have earned from that money.

The decision opened the door for other individuals to sue if they feel their retirement funds are mishandled. Pro-business groups and other detractors of the ruling have said it will unleash a wave of costly litigation against employers.

But Justice John Paul Stevens, writing in his opinion, pointed out that times have changed in the retirement world as old-line, corporate-managed pensions have given way to the 401(k) concept. Funded with pretax dollars, the plans leave major investment decisions largely up to employees.

The Bush administration sided with LaRue, saying the lower court rulings left all 401(k) participants without a meaningful legal remedy if their retirement plan administrators act negligently. DeWolff Boberg and employer groups countered that the 34-year-old ERISA law does not allow individuals to file lawsuits.

LaRue, who lives in Texas, filed his complaint in Charleston because that was where his former employer was incorporated and once had an office. DeWolff Boberg, now based in Dallas, has said through its attorney that it expects to prevail once the case is reheard by District Court Judge David C. Norton.

No trial date has been set.

Until then, employees and employers alike would be wise to know the difference between routine, market-driven losses in their 401(k) plans and negligence.